ACC 202 – WEEK 3 – CNOW ASSIGNMENT
Mastery Problem: Return on Investment, margin, and turnover
Return on Investment (ROI)
The manager of an investment center should be evaluated based on revenues, costs, and investments. An evaluation based on net
income ignores the amount of investment the investment center required. One way to measure operating profit in relation to
investment is a calculation called the return on investment.
Operating income
One formula for calculating return on investment is:
Invested Assets
ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues,
costs, and investments. ROI measures the income (or return) earned on each dollar of investment.
APPLY THE CONCEPTS: Calculating return on investment
The divisional income statements for three divisions of the Silver Company are shown.
Silver Company
Divisional Income Statements
For the Year Ending December 31, 2012
Division A Division B Division C
Sales Revenue $1,218,000 $809,600 $408,000
Operating expenses (718,620) (607,200) (216,240)
Operating income before service department charges $499,380 $202,400 $191,760
Service department charges (228,984) (8,096) (110,160)
Operating income $270,396 $194,304 $81,600
Additional financial data from the three divisions of the Silver Company are shown.
, ACC 202 – WEEK 3 – CNOW ASSIGNMENT
Division A Division B Division C
Invested assets $1,160,000 $704,000 $480,000
Calculate the return on investment for each division. If required, round the ROI to the nearest hundredth of a percent (for example,
16.943% would be rounded to 16.94%).
Division A Division B Division C
fill in the blank fill in the blank fill in the blank
Return on a81881fbffc5fea_1 a81881fbffc5fea_2 a81881fbffc5fea_3
investment 23.31 27.6 17
% % %
Feedback
Divide Operating income by Invested Assets and express it as a percentage, rounded to to two decimal places.
Margin and Turnover
One way to analyze the difference in return on investment for each division is to separate the return on investment formula into two
calculations: margin and turnover. Margin shows the relationship between operating income and sales. It measures the profit earned
for each dollar of sales, which is a measure of operating profitability . Turnover shows the relationship between sales and invested
assets. It measures how many dollars of sales result from each dollar of invested assets, which is a measure of operating efficiency .
The formulas for margin and turnover are:
Operating income
Margin =
Sales
Sales
Turnover =
Invested Assets
Feedback
The Margin is a measure of income per sales dollar.
Mastery Problem: Return on Investment, margin, and turnover
Return on Investment (ROI)
The manager of an investment center should be evaluated based on revenues, costs, and investments. An evaluation based on net
income ignores the amount of investment the investment center required. One way to measure operating profit in relation to
investment is a calculation called the return on investment.
Operating income
One formula for calculating return on investment is:
Invested Assets
ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues,
costs, and investments. ROI measures the income (or return) earned on each dollar of investment.
APPLY THE CONCEPTS: Calculating return on investment
The divisional income statements for three divisions of the Silver Company are shown.
Silver Company
Divisional Income Statements
For the Year Ending December 31, 2012
Division A Division B Division C
Sales Revenue $1,218,000 $809,600 $408,000
Operating expenses (718,620) (607,200) (216,240)
Operating income before service department charges $499,380 $202,400 $191,760
Service department charges (228,984) (8,096) (110,160)
Operating income $270,396 $194,304 $81,600
Additional financial data from the three divisions of the Silver Company are shown.
, ACC 202 – WEEK 3 – CNOW ASSIGNMENT
Division A Division B Division C
Invested assets $1,160,000 $704,000 $480,000
Calculate the return on investment for each division. If required, round the ROI to the nearest hundredth of a percent (for example,
16.943% would be rounded to 16.94%).
Division A Division B Division C
fill in the blank fill in the blank fill in the blank
Return on a81881fbffc5fea_1 a81881fbffc5fea_2 a81881fbffc5fea_3
investment 23.31 27.6 17
% % %
Feedback
Divide Operating income by Invested Assets and express it as a percentage, rounded to to two decimal places.
Margin and Turnover
One way to analyze the difference in return on investment for each division is to separate the return on investment formula into two
calculations: margin and turnover. Margin shows the relationship between operating income and sales. It measures the profit earned
for each dollar of sales, which is a measure of operating profitability . Turnover shows the relationship between sales and invested
assets. It measures how many dollars of sales result from each dollar of invested assets, which is a measure of operating efficiency .
The formulas for margin and turnover are:
Operating income
Margin =
Sales
Sales
Turnover =
Invested Assets
Feedback
The Margin is a measure of income per sales dollar.
